The recent Facebook acquisition of WhatsApp for $19 billion has been talked about quite a bit in the media, but many fewer people have been paying attention to the Internet giants of China, a nation which, by sheer size and momentum of development has the potential to have significant effects globally. WhatsApp, a social messaging app that is popular abroad has a Chinese equivalent: WeChat, which is owned by one of the two major Internet giants of China: Tencent. Tencent is the group that owns QQ, a instant messaging service that started in China in 1999 and has been likened to the Chinese equivalent of AIM that many of the 80s generation in the US grew up with. Fast forward to today, Alibaba (sometimes referred to as the Ebay or Amazon of China), is the other Chinese Internet giant. While we in the US are talking about the ever-expanding “Internet of Things” that are allowing us to use mobile and cloud-based services to control our physical world (your refrigerator, parking meters, or even that dwindling keg of beer), Internet company feuds in China are literally spilling over into the streets, and, quite possibly into the air.
Taxi reservation apps are relatively new to the Chinese market, but both Tencent and Alibaba have recognized the potential of this market for major Chinese cities such as Beijing, Shanghai, Guangzhou, and Shenzhen, where more people would rather ride in the comfort of a taxi than squeeze and push for a spot on crowded public transit systems. A recent article states that in an effort to gain initial leverage in the market for taxi calling app users, Tencent and Alibaba are throwing millions into giving cash transfer rewards to users who use their respective apps to call taxis, and pay with their respective money transfer services. The “war” to gain users is based on the principal that whoever can gain loyalty faster will eventually become the principal provider of the service, with the market eventually pushing the lesser competitor out of the scene altogether.
On January 19th of this year, the taxi calling app Didi Dache, integrated with WeChat’s money transfer system and owned by Tencent, began rewarding cash transfers of 10 yuan ($1.64) to drivers and passengers to people who utilized their app to call and pay for taxi services in select cities. Drivers and passengers were each limited to a maximum of 5 “reward” cash transfers a day, and the promotion was supposed to last until February 9th. Later however, after being one-upped by the higher rewards offered to users of Alibaba’s taxi calling app Kuaidi Dache, paired with its own money transfer system Zhifubao, Didi Dache extended its promotion and raised its prize to 12-20 yuan per passenger-trip. Now, in the third round of additional investment by Tencent into Didi Dache’s promotion (of 1 billion yuan, or 164 million USD!), both companies are essentially locked into an arms race. Both companies refuse to back down, for fear of making previous investments worthless.
What are the implications? Well, for one, in addition to encouraging users to choose their app over their competitor’s, Tencent and Alibaba are using cash to promote taxi ridership. Depending on the distance traveled, passengers stated that they were able to earn money from taking taxis (the total taxi bill was less than the cash reward provided by the Internet companies). Admittedly, paying potential app users to ride taxis is not a long-term business solution, but the sphere of influence does speak to the sheer market power of these two Internet giants. Secondly, the article also describes the reaction of taxi drivers. During this feud to gain market presence, taxis in Beijing, Shanghai, Guangzhou and Shenzhen are given incentive to only pick up passengers who call them through the app, leaving those who opt for the traditional “side-of-the-road” taxi hail of yesterday in the dust. Some taxi drivers even register multiple accounts on multiple phones, and pay for faster data plans on their phones in order to stay competitive.
Again, although the feud is not likely to last for an extended period of time, keep in mind that both Alibaba and Tencent are actually quite diversified Internet companies, with high penetration rates in Chinese society. Even if cold cash transfers are not likely to sustain, it is not unthinkable that either company begin to offer promotions of gaming credits for their social networks, upgrades to paid services, or even investment products for loyal users. In a country where major cities suffer from extreme air pollution and a widening gap between the rich and poor, the implications of the business decisions of Chinese Internet giants are relevant to physical, urban life for millions in an extremely profound way.